HealthSavings Blog

Mar

05

T. Rowe Price Survey Highlights Need For Investment HSAs

T. Rowe Price Survey Highlights Need For Investment HSAs

A recent T. Rowe Price study, “Retirement Savings and Spending: Behaviors and Attitudes Toward Retirement,” surveyed both retirees and current workers about their views and concerns regarding retirement. By uncovering the extent to which healthcare costs dominate the retirement conversation, the study highlighted the need for investment HSAs as a long-term savings vehicle to pay for retirement medical expenses.

Survey Findings

According to the study, health and potential healthcare expenses were retirees’ two greatest worries, more so than whether their assets would last and whether their time would be spent meaningfully. Also, their three biggest spending concerns in retirement were all related to health. Covering long-term care services was the single greatest fear, followed by paying for health insurance premiums and covering out-of-pocket healthcare expenses. Current workers had similar thoughts. When asked whether they thought they would have enough money to pay for medical expenses in retirement, less than half of respondents thought they would.

This survey highlighted a common concern shared by retirees and current workers alike: Healthcare costs are rising, and I don’t know how to pay for them. Not only do I need to build funds to effectively cover future healthcare costs, I also need to make those retirement funds go farther in paying for my medical expenses. I need something that can help me save specifically for future healthcare costs, as well as help me maximize my tax savings once I start using those funds. In short, I need an HSA.

HSAs: Building Dedicated, Tax-Advantaged Medical Savings

HSAs are the absolute best way to save for medical expenses; they have unmatched tax savings and can be invested long-term just like a 401(k). Funds contributed to an HSA are tax-free or tax-deductible, and interest and earnings grow tax-free too (in almost every state). Plus, if those funds are contributed via payroll withholding through an employer’s Section 125 plan, both the accountholder and the employer save on FICA taxes as well. Those funds can then be invested long-term to build a dedicated nest egg for future healthcare costs.

In addition, once accountholders have retired and are ready to start using HSA funds to pay for qualified medical expenses, those withdrawals are tax-free too. That’s right, HSAs have a triple tax advantage for contributions, growth, and withdrawals. For retirees, that means funds they take out of their HSAs for medical expenses will go farther than funds from their 401(k) plans or IRAs.

This matters because a recent Healthview study found that the average couple retiring at age 65 could have up to $404,000 of non-Medicare-covered medical expenses they’re liable to pay. If retirees used 401(k) funds to pay for that $404,000 of healthcare costs, they could pay up to $538,000 once taxes are factored in (that’s an extra $100,000). By using tax-free HSA dollars for those medical expenses, retirees can maximize their savings’ tax efficiency and keep their 401(k) funds for other costs. And if retirees need to use HSA funds for non-medical expenses, those funds are only subject to normal income taxes like a 401(k) if withdrawn after age 65.

HealthSavings: The Investor’s HSA

While they’ve only been around for 15 years, HSAs are here to stay. According to the Devenir 2018 Year-End HSA Research Report, there are more than 25 million HSAs in the market holding nearly $54 billion in assets. And, over $10 billion of those assets are being invested rather than sitting in a low-interest cash account. Rather than just being a way to save taxes on current medical expenses, HSAs are now being recognized as a powerful investment vehicle and an essential part of a comprehensive retirement strategy.

HealthSavings has been championing investment HSAs since they were enacted in 2003. Our carefully curated selection of low-fee, institutional-class funds and first-dollar investing with no minimums make us the hands-down choice as an investment HSA provider. Also, our accountholders’ average balance is 5x higher than the industry average; our accountholders see the value of using their HSAs as a long-term investing vehicle.